Franklin Templeton holds 10% of Hungary’s govt debt – reports

Around 10% of Hungary’s local bond market is owned by Franklin Templeton Investments, according to reports.

Hungarian business daily newspaper Napi Gazdasag reported on 6 December that the group has accumulated more than 1trn forints ($4.4bn) as a house.

The group’s $61bn Templeton Global Bond fund, run by Michael Hasenstab, has a 4.3% exposure to Hungary, translating to $2.6bn, while the $494m Templeton Emerging Markets Bond fund has a 6.4% allocation, or $31m.

Bloomberg data, as at the end of September, showed a number of Hungarian local currency bonds among the Global Bond fund’s holdings, as well as debt issued in foreign currencies.

On one local currency government bond, which is $2bn in size, Franklin Templeton owns 40% of the entire issue, while on a US dollar denominated 10-year Hungarian bond, a $3bn issue, the group owns 58%, according to Bloomberg data.

The investments could be perceived to be risky given Hungary’s debt was downgraded from investment grade to junk status by Moody’s at the end of November. This followed an approach by the Hungarian government to the IMF requesting a financial safety net.

Franklin Templeton declined to comment on the positions. However, the group did highlight that Hasenstab is not the only manager in the firm to hold Hungarian debt – in fact, several fund managers across the business invest in these securities.

In September Investment Week wrote emerging economies would face a systemic crisis if foreign investors, who own one-third of EM local currency debt markets, begin to pull out their cash.

Fund managers such as Michael Riddell, manager of M&G’s Emerging Markets Bond fund, said earlier this year the market “must be smoking crack” to perceive EM debt as a safe haven. He warned an unwinding of the huge positions foreign investors have placed in EMD will result in a “systemic event” for emerging market economies.

“A reversal of the huge capital inflows into EM debt would result in a total lack of liquidity and significantly higher borrowing costs for emerging market countries,” he said at the time.

However, Templeton and PIMCO, another huge EMD investor, later said these fears were overdone despite both groups seeing major outflows in September as well as poor performance in the asset class as a whole.

October’s performance picked up but inflows into EMD failed to return to previously high levels.